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An unexpected boost in German IFO business sentiment gave the Euro a lift yesterday. The data showed sentiment at a three year high, hitting 106.7 versus a forecast level of 105.5 and reaffirming the positive data flow from Germany over the past month. However, Irish woes continued with Standard & Poor’s, the ratings agency, downgrading their debt to AA- with a negative outlook. The huge cost of supporting the Irish banking system will push debt towards 113 per cent of GDP according the S&P estimates, well above the Eurozone average putting increasing demands on the Celtic tiger’s public finances and creating serious headwinds for economic growth. Irish ministers were understandably furious, but the fear is the austerity measures designed to reduce the government budget deficit may make the job harder because of increasing unemployment and depressing tax revenues. This fear, applicable to the other indebted Eurozone nations, is once again hanging over the Euro and is allowing Sterling and the Dollar to regain lost ground against it.
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Sales of previously owned US homes dropped more than expected in July to their lowest pace in 15 years implying further loss of momentum in the States economic recovery.  The record drop of 27.2% from June equates to an annual rate of 3.83 million units which is the lowest level since May 1995 and June’s sales pace was revised down to a 5.26million-unit pace.  Markets had been anticipating a tumble of around 12% and so were shocked with the magnitude of this figure.
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The newest member of the Bank of England’s rate-setting Monetary Policy Committee hit the headlines this morning. Britain faces “significant” risk of a fresh slump into recession according to Dr Martin Weale, who said it would be “foolish” to rule out the possibility of a double-dip downturn. He also thought the Banks central outlook on growth could be too optimistic in light of the fiscal cuts currently being implemented. The BoE forecast is for growth of about 2.8% in 2011 and 3.2% in 2012. Sterling has dropped over a cent against the dollar following the news and has traded as low as 1.5371.
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Forecasters working with some of the larger ratings agencies have surprised the market by suggesting that the pound may come under significant pressure before the end of the year. Whilst the Chancellor had been applauded for taking the plunge and cutting public spending, austerity measures in the UK will undoubtedly affect growth in the UK economy which puts the UK at a disadvantage when compared with the more robust US and European forecasts. Despite this thought the pound has moved higher against the euro over from Friday, with an opening bid of 1.2664 for Monday 23rd.

Britain’s retail sales figures released on Thursday do suggest that inflation rises have not deterred consumers, plus weakness in the pound has attracted improved tourist activities, however Britain is not nearly as flexible as her European competitors when it comes to extending visas to the newly mobile consumers arriving from the far east, and as the summer draws to an end it has been suggested that we will see a decline in like for like figures as UK residents tighten the purse strings.

August is a usually a quieter time, but one hopes that rates above 1.20 will tempt buyers to considering exchanging at this improved level. The temptation is always to speculate further, but hardly any of the fiscal or monetary policy measures that have been proposed to deal with credit or inflationary issues will have positive effects for the Brit buyers in the short term. Autumn will continue to prove and uncertain time for the UK and the pound.

Reports today suggest FX analysts are the most pessimistic on the Pound since May 2009, predicting the Chancellor’s cuts will eat into economic growth, the already soft economic recovery is forecast to slow causing Sterling to fall back against both the Dollar and Euro. Median estimates suggest the Pound will drop 8 per cent against the Euro by year end as the recent bullish UK data starts to deteriorate.
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Gilts opened lower and Sterling remained on the back foot on Thursday morning ahead of UK Public finances and UK retail sales. The market continues to be concerned about public sector debt so any poor data was expected to see the market react abruptly as investor’s fear the UK government will struggle to meet its target for narrowing the deficit this year.
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